Fingrid Group's Interim Report 1 January -30 June 2012

Financial result

The Group’s revenue between April and June was 93 million euros (91 million euros during the corresponding period in 2011). Other operating income was 0.7 million euros (0.5 million euros). Grid service income was 46 million euros (37 million euros) and sales of imbalance power 30 million euros (38 million euros). The operating profit of the Group between April and June was -5 million euros (2 million euros), which contains -1 million euros (-2 million euros) of changes in the fair value of electricity derivatives. IFRS profit before taxes was -7 million euros (-4 million euros) between April and June.

The Group’s revenue between January and June was 262 million euros (243 million euros) and other operating income was 1 million euros (1 million euros). The operating profit of the Group between January and June was 49 million euros (44 million euros), which contains -9 million euros (-2 million euros) of changes in the fair value of electricity derivatives. The consolidated IFRS profit before taxes was 43 million euros (31 million euros) between January and June. The profit for the review period was 32 million euros (23 million euros) and the consolidated total comprehensive income was 35 million euros (6 million euros). Gross capital expenditure between January and June totalled 56.7 million euros (110.3 million euros). The cash flow from the operations of the Group deducted by capital expenditure was 43 million euros positive (-43 million euros). The equity ratio of the Group was 26.2 per cent (28.3 per cent) at the end of the review period.

Grid service income rose to 145 million euros (115 million euros) between January and June as a result of the tariff increase of 30 per cent carried out at the beginning of the year. Electricity consumption in Finland decreased by 2.4 per cent from the corresponding period in 2011. The sales of imbalance power decreased to 76 million euros (87 million euros) as a result of a lower price of electricity. Inter-TSO compensation income decreased by 7 million euros mainly due to reduced electricity exports from Finland to Sweden. Fingrid’s cross-border transmission income on the connection between Finland and Russia decreased by 6 million euros from the corresponding period in the previous year because of a significantly smaller volume of electricity imports from Russia. The congestion income on the interconnection between Finland and Estonia decreased considerably as a result of fewer hours with a different price of electricity between the two countries. Fingrid’s congestion income on the interconnection between Finland and Estonia was 2 million euros (8 million euros). On the other hand, Fingrid’s congestion income on the interconnection between Finland and Sweden rose considerably due to the market situation and faults on the cross-border interconnectors. Fingrid’s congestion income between Finland and Sweden was 15 million euros (2 million euros).

​Revenue and other income (million €)

​1-6/12

​1-6/11

​4-6/12

​4-6/11

Grid service income​

​145

115​

​46

​37

Sales of imbalance power​

76​

​87

​30

​38

ITC income​

6​

​13

2​

6​

​Cross-border transmission income

​6

​12

​1

​6

​Finland-Estonia congestion income**

2​

​8

​1

​2

Peak load capacity income***​

​9

​3

5​

0​

Finland-Sweden congestion income​

​15

2​

​8

​1

Other revenue​

​2

2​

​1

​0

Other operating income​

​1

​1

​1

​1

​Revenue and other income total

264​

​244

93​

​91

The purchases of imbalance power decreased to 68 million euros (79 million euros) as a result of a lower price of electricity. The loss energy costs rose by 1 million euros from the corresponding period in 2011 due to the difference between the area price for Finland and Nord Pool’s system price. At the end of June, approx. 103 per cent of Fingrid’s projected loss energy procurement for the remaining part of 2012 had been hedged at an average price of 46.9 euros per megawatt hour.

The depreciation costs increased by 4 million euros as significant new capital investment projects were completed. The costs of reserves, which safeguard the system security of the power system, rose by 7 million euros during the period under review because the temporary purchases of frequency controlled reserves in the hourly market in Finland and from the other Nordic TSOs were more expensive than earlier. The personnel costs increased by 1 million euros from the previous year. The maintenance management costs rose by 3 million euros from 2011. This was particularly due to the high repair costs of the Fenno-Skan 2 cable. The inter-TSO compensation costs went up by 2 million euros, because electricity imports from Sweden to Finland increased from 2011.

​Costs (million €)

​1-6/12

1-6/11​

4-6/12​

​4-6/11

​Purchase of imbalance power

​68

79​

​26

35​

Purchase of loss energy​

​31

​30

​13

​11

Depreciation​

​37

34​

19​

17​

​Finland-Estonia grid rents**

2​

​8

​1

2​

​Reserve costs

19​

11​

​12

6​

Personnel ​

11​

​10

​6

5​

​Peak load capacity costs***

​9

​2

5​

-1​

​Maintenance management costs

10​

​7

​7

​4

​ITC transmission costs

7​

​5

​4

​2

​Other costs

​11

​11

​5

​6

​Costs total

206​

​198

98​

88​

​Operating profit*

​58

​45

-4​

4​

​Operating profit of Group, IFRS

​49

​44

-5​

​2

*Excluding the change in the fair value of derivatives.**Fingrid’s income from the congestion income between Finland and Estonia was 2.1 million euros. The costs (grid rents between Finland and Estonia) were 2.0 million euros, which was paid to the owners of the Estlink transmission connection. The difference of 0.1 million euros received by Fingrid was created during disturbances on the Estlink connection.***The peak load capacity income and costs are related to the securing of the sufficiency of electricity during peak consumption hours within the framework of the Finnish Peak Load Capacity Act.

The Group’s income flow is characterised by seasonal fluctuations, which is why the financial result for the entire year cannot be directly estimated on the basis of the six-month result.

Capital expenditure

The contracts for the construction of the Ulvila and Kristinestad substations and of the new 400 kilovolt transmission line between these substations have been signed. The contract for the construction of the northern part of the transmission line between Kristiina and Leväsjoki was signed with Eltel Networks Oy. The contract for the southern part Leväsjoki - Ulvila was signed with the consortium Destia-Tecnolines-Sirti (DTS Consortium). The construction will commence with the foundation work towards the late summer. The Ulvila 400/110/20 kilovolt substation will be renewed by ABB Oy, and the Kristinestad substation by Infratek Oy. The total costs of this overall project are approx. 70 million euros. The projects will be completed by the end of 2014.

Fingrid has made a capital investment decision concerning the construction of a new 400/110 kilovolt transformer substation at Lavianvuori to strengthen the transmission system in the Pirkanmaa region. The new substation will support the long-term development of the transmission grid in the region. The substation to be located on the border between Kangasala and Valkeakoski will be connected to the 110 kilovolt network in the region with a new 110 kilovolt transmission line of 6 kilometres. The costs of this project are about 15 million euros.

Fingrid’s new field tower was awarded the Grand Prix in the Fennia Prize 2012 competition in industrial design in early June. The new field tower model has been developed in co-operation with design agency Muotohiomo. The award-winning tower is a double-circuit tower for 400 kilovolt and 110 kilovolt transmission lines. The field towers will be used for the first time on the transmission line between Nurmijärvi, Hyvinkää and Hikiä.

The Group’s gross capital expenditure between April and June was 37.5 million euros (70.0 million euros during the corresponding period in 2011). Gross capital expenditure between January and June totalled 56.7 million euros (110.3 million euros).

Power system operation

Electricity consumption in Finland between April and June totalled 18.9 terawatt hours (19.1 TWh during the corresponding period in 2011). A total of 14.3 TWh of electricity was transmitted in Fingrid’s grid during the same period, representing 76 per cent of the electricity consumption in Finland. Between January and June, the electricity consumption in Finland declined by 2.4 per cent from the previous year to 43.5 TWh (44.6 TWh).

Electricity transmissions between Finland and Sweden in the first half of 2012 consisted mainly of imports to Finland. A ship anchor caused a cable fault in the Fenno-Skan 2 submarine transmission connection between Finland and Sweden in February. The repair of the fault was completed at the end of April. Even after this, the import capacity on the cable had to be limited partly until early June so that the auxiliary systems of the high-voltage direct current connection could be restored. Between April and June, 3.7 TWh of electricity was imported from Sweden to Finland (0.3 TWh), and 0.1 TWh (1.3 TWh) was exported from Finland to Sweden. Between January and June, 6.9 TWh of electricity was imported from Sweden to Finland (0.7 TWh), and 0.2 TWh (3.2 TWh) was exported from Finland to Sweden.

The electricity transmissions between Finland and Estonia were dominated by exports from Finland to Estonia. Between April and June, 0.1 TWh (0.6 TWh) of electricity was imported to Finland from Estonia, and 0.4 TWh (0.0 TWh) was exported from Finland to Estonia. Between January and June, the electricity imports to Finland from Estonia were 0.2 TWh (1.3 TWh), and 0.8 TWh (0.0 TWh) was exported from Finland to Estonia.

The full electricity import capacity from Russia to Finland has been available. The electricity import volume from Russia has been decreasing since the end of 2011, and this trend relating to the market situation has continued. Between April and June, 0.6 TWh (3.1 TWh) of electricity was imported from Russia to Finland, and between January and June the import volume was 2.6 TWh (6.1 TWh).

The Fenno-Skan 1 and Fenno-Skan 2 connections experienced a fault at the same time in late April due to an auxiliary power failure while the import capacity was 1,350 megawatts. The fault which exceeded the normal contingency criteria was overcome by starting Fingrid’s all reserve power plants. The switching of the auxiliary power systems at the Rauma substation has been changed after the incident to minimise the likelihood of a simultaneous failure.

There were no significant outages leading to interrupted electricity supply in the Finnish transmission system during the review period.

Fingrid Oyj and LNI Verkko Oy have agreed on the use of diesel reserve power plant units as part of Fingrid’s nation-wide fast disturbance reserve. The diesel reserve power plants owned by LNI Verkko Oy are small units located at a number of substations. The total output of the units is 13 megawatts. This is the first agreement concerning the use of small reserve power plant units as a combined entity which can be controlled, also as part of the nation-wide fast disturbance reserve.

The volume of frequency controlled reserves offered to the market by domestic electricity production and such reserves purchased from Russia have been smaller than normal due to the electricity production and import situation. This has resulted in more expensive reserve purchases from other sources. Reserves have also been acquired from the other Nordic transmission system operators.

​Power system operation

​1-6/12

​1-6/11

​4-6/12

4-6/11​

Electricity consumption in Finland TWh​

​43.5

44.6​

18.9​

19.1​

Fingrid's transmission volume​

​31.8

​33.4

​14.3

​14.7

Fingrid's loss energy volume TWh​

0.5​

0.6​

0.2​

0.2​

​Electricity transmissions Finland-Sweden

​

​

​

​

Exports to Sweden TWh​

0.2​

3.2​

​0.1

1.3​

Imports from Sweden TWh​

6.9​

​0.7

​3.7

0.3​

Electricity transmissions Finland-Estonia​

​

​

​

​

Exports to Estonia TWh​

​0.8

​0

0.4​

​0

Imports from Estonia TWh​

0.2​

1.3​

​0.1

0.6​

​Electricity transmissions Finland-Russia

​

​

​

​

​Imports from Russia TWh

2.6​

​6.1

0.6​

​3.1

Electricity market

Due to the good water reservoir situation, the price of electricity in the Nordic electricity exchange was significantly lower than during the corresponding period in 2011. The average price (system price) in the Nordic electricity exchange during the second quarter in 2012 was 28.42 euros per megawatt hour (52.24 €/MWh during the corresponding period in 2011), and the area price for Finland was 32.40 €/MWh (51.96 €/MWh). Between January and June, the average price in the Nordic spot market was 33.45 €/MWh (59.17 €/MWh), and the area price for Finland was 37.56 €/MWh (58.38 €/MWh). Area price differences were created in the market due to the market situation and restrictions encountered in electricity transmission between Finland and Sweden.

Market integration is making progress in the Baltic countries. Lithuania joined the Nord Pool Spot market as a bidding area on 18 June. At the same time, a new bidding area was opened on the border between Estonia and Latvia. Its purpose is to boost trade between Estonia and Latvia even though Latvia is still outside the market. There are plans to open the Latvian bidding area in 2013, but before that the ISO (Independent System Operator) model of the Latvian transmission system operator must be subjected to the approval of the European Commission.

Electricity imports from Russia have gone down significantly during the early part of 2012. The reasons for this are the capacity fees imposed on electricity exports in Russia, the elevated price level in Russia, and the low price level in the Nordic countries resulting from the good water reservoir situation. Small volumes of electricity have been imported from Russia to Finland, mainly at night and on weekends. At other times, electricity has been more expensive in Russia, so it has not been lucrative to export it to Finland.

Fingrid raised the prices of balance service on 1 July. The price increases are the result of the growth of the reserve costs allocated to balance service and of a smaller than anticipated accumulation of the fee for production.

Fingrid’s counter trade costs between January and June were approx. 2.8 million euros (1.0 million euros in 2011).

​Electricity market

​1-6/12

​1-6/11

​4-6/12

​4-6/11

Nord Pool system price, average €/MWh​

33.45​

​59.17

28.42​

52.24​

​Area price Finland, average €/MWh

​37.56

​58.38

32.40​

51.96​

​Congestion income between Finland and Sweden, million €

​30.6

4.0​

15.2​

0.6​

​Congestion hours between Finland and Sweden %*

37.4​

13.3​

34.8​

​6.6

Congestion income between Finland and Estonia, million €​

4.3​

8.3​

1.8​

0.7​

​Congestion hours between Finland and Estonia %*

​33.4

​69.7

38.4​

58.8​

*The congestion income between Finland and Sweden as well as between Finland and Estonia is divided between the relevant TSOs in equal proportions. The income and costs of the transmission connections are presented in the tables under Financial result.

Financing

The financial position of the Group continued to be satisfactory. Fingrid issued a bond of 300 million euros with a maturity of 12 years under its EMTN (Euro Medium Term Note) Programme of 1.5 billion euros. The public listing of the bond started on London Stock Exchange on 3 April 2012.

The net financial costs of the Group between April and June were 2 million euros (6 million euros during the corresponding period in 2011). The net financial costs between January and June were 7 million euros (13 million euros), including the change of 5 million euros (-3 million euros) in the fair value of derivatives. Financial assets recognised at fair value in the income statement, and cash and cash equivalents amounted to 256 million euros (240 million euros) at 30 June 2012. The interest-bearing borrowings totalled 1,236 million euros (1,135 million euros), of which 1,078 million euros (732 million euros) were long-term and 159 million euros (403 million euros) were short-term. The counterparty risk involved in the derivative contracts relating to financing was 69 million euros (45 million euros).

Moreover, the company has an undrawn revolving credit facility of 250 million euros.

Personnel

The total personnel of the Fingrid Group averaged 267 (264) during the review period.

Auditing

The consolidated figures in this Interim Report are unaudited.

Events after the review period and outlook for the remaining part of the year

The ownership structure of Nord Pool Spot AS, the Nordic electricity exchange, changed on 1 August 2012. The Estonian and Lithuanian transmission system operators became co-owners of Nord Pool Spot AS with a respective holding of 2.04 per cent through a special share issue. Moreover, the Latvian TSO has an option to become a co-owner at a later date. As a result of the arrangement, Fingrid Oyj’s ownership in Nord Pool Spot AS decreased to 19.18 per cent. If the Latvian TSO becomes a co-owner, Fingrid Oyj’s holding in the electricity exchange will decrease to 18.8 per cent.

The profit of the Fingrid Group for the entire accounting period without the change in the fair value of derivatives is expected to increase clearly from the level of 2011. The uncertainty related to congestion income and Russian cross-border transmission income complicate estimating the profit for the entire accounting period.